Apple's Cook Heads to Washington to Talk Taxes

Microsoft and HP executives have had to answer pointed questions from Congress about their offshore cash strategies. Now it's Apple's turn. CEO Tim Cook is slated to testify before a U.S. Senate subcommittee considering tax code changes regarding offshore profits and tax avoidance strategies. The company is defending itself ahead of next week's hearing by talking up its corporate tax payments and record of job creation.

Apple CEO Tim Cook is scheduled to appear before a U.S. Senate committee next week to answer questions about his company parking profits offshore.

In a notice for the May 21 hearing, the Permanent Subcommittee on Investigations said "representatives of a multinational corporation" would be appearing at the event, but that a detailed witness list wouldn't be available until Friday.

However, both Politico and Bloomberg Businessweek reported Thursday that one of the representatives of the unnamed multinational corporations would be Cook.

Next Tuesday's hearing will be the second the subcommittee has held on the subject of offshore profit-shifting. Last September, it heard from Microsoft and HP about their offshore money management strategies.

Apple did not respond to a request for comment for this story, but in a statement to Politico, it said:

"Apple is one of the largest taxpayers in the United States, having paid US$6 billion in federal corporate income tax in fiscal 2012. We also help create hundreds of thousands of jobs in the U.S. by keeping our R&D in California and creating category-defining products like the iPhone, iPad and the App Store, which has generated billions of dollars in sales for software developers."

Avoiding Fair Share

Apple, along with HP, Microsoft and other companies, keeps a large chunk of its profits outside the U.S., where the Internal Revenue Service can't touch them. The company has a reported $40 billion in earnings parked offshore which, if brought home, would bring $13.8 billion into the U.S. Treasury's coffers.

The chairman of the subcommittee, Michigan Democrat Carl Levin, has criticized corporations that shelter their profits abroad.

"U.S. multinational corporations benefit from the security and stability of the U.S. economy, the productivity and expertise of U.S. workers and the strength of U.S. infrastructure to develop enormously profitable products here in the United States," Levin said in a statement last fall.

"But too often," he said, "too many of these corporations use complex structures, dubious transactions and legal fictions to shift the profits from those products overseas, avoiding the taxes that help support our security, stability and productivity."

Avoidance, Not Evasion

As irritating as parking profits abroad may be to tax collectors, from a corporate CFO's point of view, it's just good business practice.

"A smart CFO is charged with paying what has to be paid and not paying more than that,"
Boston University
management professor James Post told MacNewsWorld.

"This is legitimate tax avoidance, not tax evasion," he added.

However, allowing taxes to drive a company's decisions may not be the best way to run a firm. "We're not getting what's economically efficient," Post said. "We're getting what's tax-efficient."

The result of that may be fewer jobs created and less money spent on R&D in the United States, he added, as well as fewer services for citizens because there's no money to fund them.

Shaming Apple

In the past, the federal government tried to lure offshore profits back into the country through a tax amnesty, which allowed the money to be repatriated at a rate of 5.25 percent. That, however, neither created jobs or increased R&D.

"They brought home about $300 billion," H. David Rosenbloom, a member of the law firm of
Caplin & Drysdale, told MacNewsWorld, "and they used it to pay their executives higher salaries and to buy stock, and they didn't create a single job. In fact, they lost jobs."

"That's fundamentally not the right strategy," he told MacNewsWorld. "The right strategy is to do what every other country is doing, and that's compete for global investments. You do that with better tax rates, better workforce training, better infrastructure. Those are the things we have to do as a country -- not attack companies or ignore the problem entirely."